Legal issues for the UK consumer finance industry
On 3 September 2019, the Banking Standards Board published the final version of its statement of good practice on the certification regime and regulatory references under the Senior Managers and Certification Regime.
This statement provides some very useful guidance on the certification regime and regulatory references (including the thorny issue of what the reference must include).
We’ve recently updated a practice note, published by Practical Law and written by Russell Kelsall and Alanna Tregear, entitled: ‘What is the meaning of credit under the UK consumer credit regime?’. We’ve updated it to consider the High Court’s recent decision in CFL Finance Limited v Bass & Others [2019] EWHC 1839 (Ch).
If you’re a subscriber to Practical Law, you can visit the practice note by clicking here or by visiting: https://uk.practicallaw.thomsonreuters.com/w-005-5092.
On 26 July 2019, the UK Financial Conduct Authority published a policy statement, PS19/20, setting out its final rules and guidance on:
– the extension of the Senior Managers & Certification Regime to FCA solo-regulated firms and a new directory; and
– a new directory of individuals working in financial services.
For in-house lawyers, and importantly, a Head of Legal is excluded from the requirement to be approved as a Senior Manager.
The new SMCR rules come into force on 9 December 2019.
On 27 June 2019, the Financial Conduct Authority (FCA) launched its market study into the credit information market. It’s been launched because of the FCA’s concerns about the coverage and quality of credit information, the effectiveness of competition between credit reference agencies and the extent of consumer engagement.
The FCA’s aim is to get a better understanding of how the credit information market now works and how it may develop in the future by making it work more effectively for credit information user and consumers (where appropriate).
The market study will focus on:
The FCA’s market study is not unsurprising. Consumers are becoming much more aware of their credit report and rating (with a little help from comedian Marcus Brigstocke) and how this affects their ability to obtain credit. A simple search of the Financial Ombudsman Service’s decision for May 2019 reports 324 decisions for consumers complaining about their credit reports.
The FCA will report on its preliminary conclusions in Spring 2020 including, if appropriate, a discussion of potential remedies.
https://www.fca.org.uk/news/press-releases/fca-launches-review-credit-information-market
On 26 June 2019, the UK Financial Conduct Authority published an undertaking given by ETA Services Limited about the fairness of a term in its cycle insurance policy. The undertaking was given under the Consumer Rights Act 2015.
The FCA’s concern was over the transparency of a term allowing ETA Services Limited to reject a claim if a bicycle had not been secured using an approved lock. This term appeared to conflict with another term saying a claim would be rejected if the bicycle had been left in a communal building and not secured to an immovable object (so no mention of an approved lock).
ETA Services Limited told the FCA that since 1 April 2019, the terms had been revised so that, to be covered, a bicycle needed to be secured using an approved lock when left in communal buildings. ETA Services Limited, and the insurer, also assured the FCA that redress had been paid to consumers who had claims rejected because they did not use an approved lock in communal areas.
In June 2019, HM Treasury published its response to the breathing space proposal.
Under the proposal, an individual will be eligible if:
– they’ve accessed debt advice;
– they’ve been assessed as being in ‘problem debt’ by a debt adviser; and
– they’ve not entered into ‘breathing space’ within the last twelve months.
Borrowers must continue to be eligible during the breathing space; this will involve a 30 day check.
The proposed definition of ‘problem debt’ includes a borrower who is having difficulty paying their debt and has sufficient difficulty that they stand a realistic chance of entering into a debt solution (for example, a debt management plan).
There will be no right for a lender to challenge whether a borrower is eligible.
The scheme will be administered using a portal (which will tell lenders when a borrower has entered, and left, a breathing space). The register will, however, be private: lenders will only be able to check other debtors.
For the period of the breathing space, a lender will not be entitled to charge interest, fees and charges. Lenders will also not be entitled to start court proceedings. And enforcement of judgments will also be paused during the breathing space.
The period for breathing space will be 60 days.
HM Treasury proposes to publish drafting regulations by the end of 2019 with a go-live date of early 2021.
On 15 May 2019, the Financial Ombudsman Service (FOS) published its annual review 2018/2019. FOS reported (among other complaints) an 89% rise in complaints about consumer credit.
The high-cost short-term lending (HCSTL) sector remains on FOS’s radar. It continues to hear from customers, who it says, have had trouble after being lent money and who’ve been left to struggle with unsustainable and persistent debt.
FOS is concerned that businesses are still failing to assess a customer’s affordability and aren’t learning enough from the complaints its resolved. To help businesses, FOS is publishing its decisions (https://www.ombudsman-decisions.org.uk) setting out its thinking on these types of complaints. Of particular note, is complaints arising out of loans taken out a long time ago. FOS says it’s taking the time to explain to lenders the questions they should ask before telling customers it’s too late to complain.
Given the Financial Conduct Authority’s recent interventions and FOS’s concerns, the HCSTL sector remains high on the agenda for now.
The Annual Review: https://annualreview.financial-ombudsman.org.uk
On 7 May 2019, the UK Financial Conduct Authority published a report it had commissioned by Revealing Reality on the way consumers buy regulated mortgages without advice.
There’s some interesting findings from the research including:
– execution-only customers generally understood they wouldn’t receive any advice on the mortgage;
– there was a lack of understanding (both for advised and non-advised sales) of the documentation given to customers;
– the difference between an advised and a non-advised sale was not generally understood;
– repetition helps make sure the customer understands the message;
– customers don’t like the look and feel of disclosure documents; and
– plain English, bullet points and Q&As, help get your message across better.
If you’re drafting mortgage documentation, this is likely to be a helpful bit of research. Depending on the outcome of Brexit, there may be an opportunity to simplify some of the documentation and procedures to tackle some of the problems found in this research.
On 9 May 2019, the UK Payment Systems Regulator (the PSR) published its response to the first consultation on the proposed implementation of the confirmation of payee service, and published a new consultation on a specific direction on the implementation of the service.
After considering the feedback, the PSR has refined its approach. It has decided to give a specific direction to Lloyds Group, Barclays Group, HSBC Group, Royal Bank of Scotland Group, Santander Group and Nationwide Building Society (being the six largest payment services providers).
The proposed effect of the specific direction is to require:
– From 31 December 2019: the directed PSPs must respond to compliant confirmation of payee requests; and
– From 31 March 2020: the directed PSPs must send confirmation of payee requests and present responses to their customers.
The consultation period ends on 5 June 2019.
On 9 May 2019, the UK Financial Conduct Authority published an undertaking given by James Brearley & Sons Limited about a term allowing it to end a contract by giving “written notice at any time”.
The FCA considered such a term was potentially unfair under Regulation 5(1) of the Unfair Terms in Consumer Contracts Regulations 1999 and Section 62(4) of the Consumer Rights Act 2015.
The firm agreed to stop using the term and replace it with a term saying it needed to give a customer twenty business days’ notice if it wanted to stop providing the services to them.